Trade Leader Alex Kazmarck of SpotEuro presents analysis of the EUR/USD:
The euro remained elevated above the 1.3900 level following the Crimean referendum and sanctions imposed by the US on the Russian political and business people closely connected to the Russian government. While most of this was expected, I think the market reacted positively mostly due to the fact Russia did not invade Eastern Ukraine, where people have been rallying against the newly formed Ukrainian government. I anticipate neither the Russians nor the American/EU leaders settling on this issue for some time so I think it’s worth paying close attention to what occurs as the market will be ready to react negatively on any news of a Russian invasion or annexation of Eastern Ukraine.
Technicals and Fundamentals
While the EUR/USD pair was able to break and close above the 1.3900 level, it has failed to gain momentum, mostly due to a risk-off environment centered on the geo-political conflict in Ukraine. Any positive solution should open more room to the upside and a break of 1.40 will most likely give the bulls a clear run for 1.42-1.45 levels. ECB President Draghi has been on the wires last week curtailing the euro’s upside since the stronger euro make it more difficult to stimulate inflation. There are plenty of risks that remain, including China’s slowdown and its shadow banking system which is beginning to show its cracks with the string of corporate bankruptcy filings over the last few weeks.
Currently trading at 1.3925, a 38% retracement of the latest leg higher that started on the 3rd of February brings us to support at 1.3800. A deeper retracement below 1.3700 could be a stronger sign of momentum waning and I would expect a correction back towards the supporting trend line of 1.3500 (from Summer of 2012 lows extending to the lows set at the end of January and early February of 2014).
There are several factors that are relevant to EUR/USD price action in the near term: ECB and Draghi’s stance on the higher euro, the Ukrainian conflict and the level of uncertainty involved, and the Fed’s tapering of the QE program. The latter has been priced in with expectations of taper to continue and Draghi’s content on verbally intervening when the euro pushes into the 1.40 figure. Economic data will be important to watch for signs of inflation as the latest EU data could be a one-off. Worse economic data will push for more action from the ECB and the Fed may possibly surprise the market with a pause to get a reading of consistency within the US recovery. There is a lot to process so guidance from these events will be crucial for the next push.
Short term resistance – 1.1.3970-1.400
Short term support – 1.3830-1.3900